Refused mortgage from Leeds on part buy part rent scheme..what next?

AMILLIONDOLLARS

barnaby-bear wrote: »

I know people who've moved in with an annual service charge of £600 and in 3 years it's at the £2k level (that's nearly £200 a month) on top of the rent and the mortgage, the rents can go up and they suffer from the full HA properties nearby which seem to house a bunch of chavs devaluing the development.... if they didn't flog all the SO they seem to move to rent to thugs...

To be fair this happens to most leashold flats on a Development!

robin_banks

Last year 5,000 properties intended for shared ownership where rented out to general needs HA tenants some of whom would not doubt have been chavs.

Cannon_Fodder

elle.woodz wrote: »

The scheme is designed (in my opinion anyway) for smart people...

see my reply to your last post on the thread, coming next...

Cannon_Fodder

elle.woodz wrote: »

Moreover, if I buy a share that is worth £60,000 and after say 5 years it is only worth £40,000, after selling I still get out £40,000 cash while if I would rent, I would get exactly £0.

Erm...NO.

The £40k "you come out with", has to go to the Mortgage company to clear the mortgage (unless you are buying again - and how many lenders are transporting 33% of NE at the moment?), leaving you with £20k Negative Equity, aka DEBT.

i.e. £20k of DEBT that you would not have, if you had been renting.

AND all those overpayments you have been making will just get lost in the NE...


Don't get me wrong. I'm not a BTLer, or advocate of permanent renting. There are times when buying is a good idea.

But a mortgage is ALREADY a "deferred payment" scheme - spreading the cost over 25, 30 or (stupidly imo) 40 years.

To multiply that deferral, taking the OPs example of 25%, say they take on an extra 25% every 5 to 7 years, as they find they can afford it - that just does not make sense, adding 20+ years to the term to afford the SAME property - they are simply prolonging the pain, SOLELY so that the developers gets the over-priced "list price".


Now, that isn't all the individuals fault, generally. Obviously there are people who couldn't afford/not old enough before the boom, so have arrived at a situation already out of control.

What other industry would be allowed to over-price their product, and then get Govt/Councils/HAs help in shifting them?

Why should schemes require public funding? - do Tescos get help in shifting their Premium brands? Car-makers, apart from during recessions, do not get taxpayers money to help shift stock.

Why is housing different? Because the Govt failed to control the BTL market, which has saturated the bottom of the market.

If the mortgage+rent+service charge is really less than renting or mortgaging 100%, then that proves how dodgy these schemes are...

either;

- developer has sold to HA at a discount for them to be able to rent the rest to you below market rate, in which case they should be selling direct at that discount, and have Land Registry reflect the price paid, not the 'list price' scam.

or

- its the Govt/council funds "underwriting" the scheme that permits it to be "affordable" - and the Govt/council hopes you will not spot that your (and everyones elses) taxes are higher to pay for it.


They could put "no sub-let" clauses on ALL new builds, to prevent BTL saturation. And bring the prices in range of FTBs overnight, instead of artificially supporting prices.


Its such a mad market, that in some places people are having to even consider a measly 25% of equity, when in others there are so many flats in over-supply that developers are keen to heavily discount the 100% price.


Final thought...a normal mortgage over 25 years, means you gradually earn 4% of equity each year (not really I know, as interest starts high, then repayments gradually have an effect, but purely as a "simple" example)...

With the 25% SO example, you only get to earn 1% of the property per year, so if you find your salary does not move much, or one partner leaves their job to have kids, or "life gets in the way", or whatever, you will be buying that first property over 100 years...

Try doing some maths on compound interest over 100 years...

elle.woodz

Cannon_Fodder wrote: »

Erm...NO.

The £40k "you come out with", has to go to the Mortgage company to clear the mortgage (unless you are buying again - and how many lenders are transporting 33% of NE at the moment?), leaving you with £20k Negative Equity, aka DEBT.

i.e. £20k of DEBT that you would not have, if you had been renting.

AND all those overpayments you have been making will just get lost in the NE...


Don't get me wrong. I'm not a BTLer, or advocate of permanent renting. There are times when buying is a good idea.

But a mortgage is ALREADY a "deferred payment" scheme - spreading the cost over 25, 30 or (stupidly imo) 40 years.

To multiply that deferral, taking the OPs example of 25%, say they take on an extra 25% every 5 to 7 years, as they find they can afford it - that just does not make sense, adding 20+ years to the term to afford the SAME property - they are simply prolonging the pain, SOLELY so that the developers gets the over-priced "list price".


Now, that isn't all the individuals fault, generally. Obviously there are people who couldn't afford/not old enough before the boom, so have arrived at a situation already out of control.

What other industry would be allowed to over-price their product, and then get Govt/Councils/HAs help in shifting them?

Why should schemes require public funding? - do Tescos get help in shifting their Premium brands? Car-makers, apart from during recessions, do not get taxpayers money to help shift stock.

Why is housing different? Because the Govt failed to control the BTL market, which has saturated the bottom of the market.

If the mortgage+rent+service charge is really less than renting or mortgaging 100%, then that proves how dodgy these schemes are...

either;

- developer has sold to HA at a discount for them to be able to rent the rest to you below market rate, in which case they should be selling direct at that discount, and have Land Registry reflect the price paid, not the 'list price' scam.

or

- its the Govt/council funds "underwriting" the scheme that permits it to be "affordable" - and the Govt/council hopes you will not spot that your (and everyones elses) taxes are higher to pay for it.


They could put "no sub-let" clauses on ALL new builds, to prevent BTL saturation. And bring the prices in range of FTBs overnight, instead of artificially supporting prices.


Its such a mad market, that in some places people are having to even consider a measly 25% of equity, when in others there are so many flats in over-supply that developers are keen to heavily discount the 100% price.


Final thought...a normal mortgage over 25 years, means you gradually earn 4% of equity each year (not really I know, as interest starts high, then repayments gradually have an effect, but purely as a "simple" example)...

With the 25% SO example, you only get to earn 1% of the property per year, so if you find your salary does not move much, or one partner leaves their job to have kids, or "life gets in the way", or whatever, you will be buying that first property over 100 years...

Try doing some maths on compound interest over 100 years...

First of all - I love your post - unlike other posters you made your point clearly but very politely and without referring to me being financially illiterate.

All fine but I plan to pay off my 25 year mortgage on those 25% in 5, 7 years LATEST.

If I then sell I would have a 25% share worth whatever it's worth and surely after taking out fees etc most of the money from the sale would be going into my pocket?
Reason for such early repayment is that the mortgage + rent + service charge is funnily low so I would easily afford to save up, overpay and have it paid off by approximately 6 years. And I much prefer this to renting.
I know that the scheme is not perfect but after sitting with various spreadsheets I think it is best option for me considering the levels of London area rents.
Besides that, I don't really mind living in my chosen SO property for the next 10 years or so - I feel pretty safe and don't mind prices falling (BUT I don't they will continue falling for the next ten years, especially in South East England) because during these 10 years to come I would have a better job, better salary and more savings when time will come to move.
Just an example:

Rent in same area for a 3bed flat - £1500 per month
SO mortagage, rent, service charge - £750 per month

Spare money left after bills, food, entertainment after paying rent - £500
Spare money left after bills, food, entertainment after paying rent - £1250

Taking all into account, which one seems best in this situation?

And I agree with you on this one "They could put "no sub-let" clauses on ALL new builds, to prevent BTL saturation. And bring the prices in range of FTBs overnight, instead of artificially supporting prices."

My blood boils when I read "I'm FTB and want to buy a BTL property".

Cannon_Fodder

Your figures are attractive. The rent portion appears heavily subsidised? Wonder who is paying for that?

It seems likely, also, that the interest rate that provides the low total figure for the SO method will only last a year or two.

Do the maths again, on a 6% and 8% mortgage. It'll still be "ok" relative to renting, just not such a big difference. Your overpayments could easily turn into a 10 year project, for one quarter of a property - just another way of having a 40 year mortgage...and that's for someone who can make big overpayments. For those who cannot, the 100 years analogy applies to SO, imo.


And this is all for the first property in someones life, before they want a garden for the kids, or a nice suburb near a nice school, etc etc...so when they move and re-mortgage, ok the 25% gives them a form of deposit, but they've then dropped out of the scheme, coz their joint salary has gone above the scheme rules or its only for FTBs or some other factor, so they have to fund a mortgage that is effectively 80% (allowing for deposit) of the new house PLUS 75% of the old flat...how will that be affordable, when half of a flat was not?

SO is thereby deferring the eventual payment of the inevitable.


In your good financial position, with spare disposable income, why are you not going for 50% equity, then you will take more equity with you, when you decide to move...? Overpaying may take longer, but fixing at a decent rate now for 5 years, on that portion makes a bit more sense...

With 25% and "optionally" overpaying, the danger is that bills/life/kids will come along and make that spare money disappear down a black hole and your plan unravels.

Going for 50% makes it an "enforced repayment"...good for financial discipline. It should still be cleared in around 15 years. Then do the same for the other 50%, another 15 years, assuming the market has not boomed and you can afford to take it on, as the equity-holder benefits from rises as well as falls...


My other concern is who will be paying for the effective discount you are receiving.

Is it developers advertising over-priced properties, as per Conrads post, then HAs get them through "false discounting"? This is unfair to anyone who cannot qualify for the scheme. Either we should have an open market, or mechanisms/rules to hold prices down for everyone.

Is it taxpayers money, propping up the developers margins? More snouts in the taxpayers' trough? Just what we need.

thepeachyone

Cannon_Fodder wrote: »

Your figures are attractive. The rent portion appears heavily subsidised? Wonder who is paying for that?

.

I dont know if its uncommon or not, but the rent on my 50% is also heavily subsidised, because it is a housing association scheme.

But if I wasnt buying I would be renting. If there were sufficient properties, I might even be renting from a housing association or council. That rent would also be subsidised, more than the shared ownership scheme.

I really dislike the attitude from many current home owners who seem to think first time buyers should be kept out of their exclusive club.

Cannon_Fodder

Its a really expensive club. The benefits may not be worth the entry fee.

I'm not in it at the moment. I plan to rejoin when its more sensibly priced.

If others wish to join, they can pay the "VIP" membership, that's their prerogative.

If prices had not risen to insane levels due to lax credit practices, it might not have been necessary to invent a system whereby the purchaser gets to have/need 2, or even 4, mortgages just to buy one property.